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By: Albert Bozzo, Senior Features Editor | 25 Sep 2008 | 01:17 PM ET
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Now, with a deal on the financial bailout expected soon, let's get back to the real economy—and the recession already in progress.

Unemployment Line
AP

The highest weekly jobless claims in seven years and a surprisingly sharp decline in durable goods in August are a reminder to both Wall Street and Washington that there’s more to worry about with the US economy than a hastily-assembled government bailout for the frozen credit markets.

“Companies in the real world have seen this thing coming for a year,” says the Cato Institute’s Steven Hanke, referring to the credit crunch’s effect on the broader economy. "They've been accumulating cash. Rising joblessness is what I would expect.”

Initial jobless claims jumped 32,000 last week to 493,000, the highest since September 2001, and though the government said about 50,000 of the claims were related to the dislocation of Hurricane Gustav, the four-week average also rose to a seven-year high of 462,500.

“It's no worse than it was, but that doesn't mean we're off the hook,” says Christopher Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ.

Broader labor market trends have also been flashing recession—as they have been for some time. Continuing claims rose again and were above the 3.5 million mark. The jobless rate spiked to a five-year high of 6.1 percent in August and is expected to be unchanged for September. Economists expect the rate to the jobless rate to continue its ascent through 2009, with some forecasting a peak above 7 percent.

Meanwhile, job creation is slowing and layoffs increasing.

Payrolls fell 84,000 in August, while the most recent survey of Challenger, Gray & Christmas Employers showed 88,736 job cuts in August. That increase brings the 2008 eight-month total to 667,996 and puts it on pace to top one million for the first time in years. Nearly one in six job cuts this year has come from the financial sector, the out placement firm says.

Wall Street in CrisisWALL STREET IN CRISIS - A CNBC SPECIAL REPORT

The deteriorating job situation, along with slowing consumer confidence, may be more connected to the Wall Street crisis than meets the eye.

Richard Hastings, consumer strategist at Global Hunter Securities, says the consumer is spent.

“The financial sector has leveraged up the household sector to the point where the consumer is totally dysfunctional and unable to funnel cash back to the financial sector.”

For a while now, some economists have been forecasting a year-over-year decline in consumer spending in the third quarter for the first time in almost two decades. And that was before the doom-and-gloom, act now or pay dearly rhetoric of the Treasury Dept.-Federal Reserve package.

“Consumer confidence is going to tank,” predicts Hanke, who adamantly opposes the bailout package. He says the recent rise in the savings rate shows the consumer belt tightening is clearly underway.

Hastings, who expects the jobless rate to touch 8-percent in the second half of 2008, sees a further deepening in the spending slump and is predicting year-over-year declines in retail sales during the Halloween-New Year’s holiday season.

Though Hastings' view is more pessimistic than other economists, there is a general sense that the deterioration in consumer spending and the labor markets will accelerate as the credit crunch seeps deeper into other sectors.

Data due out next week on consumer spending and income, consumer confidence and payrolls and the jobless rate will provide fuel for pessimists and optimists alike. Passage and enactment of the Wall Street rescue plan—as soon as this weekend—could have a positive effect on consumer confidence —and the overall economy—as its proponents claim.  

But the real economy, whether it’s a hurricane or the weekly jobless claims and equally bleak durable goods report out Thursday, can resonate more than usual.

“It comes at a bad time because we think the sky is falling,” says Rupkey.

© 2009 CNBC.com
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